The UK Financial Conduct Authority is entering the final phase of its consultation on crypto regulation

The UK Financial Conduct Authority is entering the final phase of its consultation on crypto regulation and is gathering feedback on applying the consumer duty to crypto firms. The FCA emphasizes that rules are meant to set industry standards and not eliminate inherent investment risks, although the consumer duty requires firms to act in good faith.

The UK regulator plans to collect all feedback by March 12 and open an application gateway for cryptoasset approvals in September. The FCA hopes to be done with all this before October, when new rules, including those already registered under money-laundering regulations (MLRs), will be authorized.

The FCA has also set out proposals on how conduct standards, safeguarding, and redress will apply to crypto firms. These proposals are expected to continue the regulator’s progress towards an open, competitive, and sustainable crypto market that investors can trust. The consumer duty sets standards for crypto companies to ensure that they deliver positive outcomes for customers while helping them navigate their financial lives.

Final consultation follows the package of proposals last December 

According to the FCA, these final consultations follow a package of proposals set out last December on applying the same approach to traditional finance in crypto. The regulator seeks to provide clear information for consumers, with well-balanced requirements for companies and flexibility to support innovation. 

The UK regulator is consulting on how the consumer duty will be supported by additional non-Handbook guidance to ensure companies deliver sufficient outcomes for retail customers. It will also seek feedback on its approach to handling conflicts and redress in order to ensure consumers have a clear path to resolving issues.

Moreover, the FCA is looking at how to apply key conduct rules to crypto activities so that companies act transparently and fairly. Rules on buying crypto on credit and reducing the risks of harm from borrowing to invest will also be considered. 

The regulator is also following feedback on its approach to categorizing crypto firms under the Certification Regime and the Senior Managers Regime. Standards for staff skills and knowledge need to be set so that firms have competent employees managing crypto services. 

The FCA also wants crypto firms to report data to the regulator so that it can monitor risks and supervise operations effectively. It reminds investors that crypto is largely unregulated in the UK and is currently used for financial promotions and financial crimes.  

FCA awards Ripple MLR registration

The FCA recently awarded MLR registration to XRP issuer Ripple, following its start of accepting applications last September. According to a notice published on its official website on January 22, the road to formal crypto regulation in the UK became clearer at the end of last year, with legislation from the Treasury extending existing financial rules to include crypto firms.

Meanwhile, the FCA said earlier this month that crypto firms looking to offer services in the UK would be required to be authorized under the new rules taking effect in October 2027. The requirement also applies to crypto firms already registered under its MLRs.

Crypto firms must also comply with operational resilience, consumer duty, financial crime, and governance requirements. The firms already registered under anti-money laundering or payment regulations will need full authorization, while those authorized by the FSMA must vary their permissions. 

However, the FCA does not plan to extend Financial Service Compensation Scheme (FSCS) protection to cryptoassets. The FSCS provides compensation for customers when companies cannot meet their liabilities. That will not be the same with investors in crypto firms that go out of business. These customers will not be able to claim compensation for investment losses, even those arising from regulated crypto activities. 

There are also potential inconsistencies in this approach, according to the FCA. Claims about shares held in custody will be covered by the FSCS, but claims about safeguarding tokens representing shares on blockchains will not be covered.

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